Chinese investors are eagerly awaiting more policy direction from China’s top economic planning body, the National Development and Reform Commission, as mainland markets return from a week-long holiday. With the goal of hitting an annual growth target of around 5%, Beijing has shown a sense of urgency in stimulating the economy. The recent measures include interest rate cuts, lower cash reserve requirements, looser property purchase rules, and liquidity support for stock markets. Chinese major indexes have surged over 25% as investors applaud the stimulus efforts.
The futures contracts tied to MSCI China A50 Connect Index and SGX FTSE China A50 Index futures have surged nearly 15% and 12.7% respectively since the end of September. This rally has been driven by Beijing’s promise to increase fiscal spending. However, the market is waiting for specifics on these policies, with economists and traders eager to see how the government plans to support growth in the real economy. There is optimism for continued momentum in the market, but this will depend on the actual implementation of policies and further support measures to boost consumer confidence and economic activity.
While some experts believe the government needs to add fiscal stimulus to maintain the rally’s momentum, others warn that expectations for additional measures might lead to disappointment. Officials are expected to brief reporters on the implementation of stimulus policies, focusing on areas such as real estate and consumption. The key will be the mechanism to boost wages, consumption, and overall consumer confidence. Economists anticipate a 2-trillion-yuan fiscal package to support local government finances, recapitalize major banks, and boost consumption.
The market is trading at historically high valuation levels, and there is concern that the room for further rally is narrowing. Analysts emphasize the need for real improvements in the economy to justify these valuations. The market could open higher following the press conference but eventually settle lower if officials repeat previous announcements without providing significant new details. Economists at Morgan Stanley expect a 2-trillion-yuan fiscal package, while UBS anticipates a more modest package in the range of 1.5 trillion to 2 trillion yuan this year.
Despite the uncertainty surrounding the exact amount of fiscal support, there is potential for significant upside in the market if Beijing follows through with anticipated measures. Citibank has raised its forecast for Hong Kong’s Hang Seng Index, predicting that it could reach 26,000 by June 2025. The bank expects Beijing to announce a 3-trillion-yuan consumption support package soon. Speculation continues as investors eagerly await details from the National Development and Reform Commission on Tuesday, hoping for clarity on the government’s plans to support economic growth in China.
